EAC stock markets push for multi-currency IPOs

Securities and stock market intermediaries across the East African Community region are now planning to introduce multi-currency denominated initial public offerings (IPO) and single licences for stockbrokers and investment banks as reforms to integrate the region’s capital markets begin.

The East African Securities Exchanges Association (Easea), which brings together the region’s stock exchanges and Kenya’s Central Depository and Settlements Corporation (CDSC), now wants IPOs to be denominated in each country’s currency to protect investors against high exchange rate.

The licence will allow market intermediaries from any country to source for business across the region without registering a separate entity and getting approvals from another regulator.

The two proposals come at a time the region is interconnecting all brokers, bourses and central depositories to create a path for a single platform, which will eventually lead to a regional securities exchange.

Easea has already adopted a back office automated system that is already in use in Kenya, as the standard for all market intermediaries in the region, which after its full adoption is expected to facilitate access to all securities in the region and Internet trading.

The multi-currency denominated IPOs would allow investors to acquire shares in a currency of their choice.

Brokers in the region said the use of local currencies in regional IPOs would reduce foreign exchange risks and boost liquidity in stock trading cycles.

“Retail investors who do not possess currency hedging options will be spared occasional foreign exchange losses, while banks will have to reconsider their charges on cross-border transactions that tend to erode dividend cheques,” said Patrick Ndonye, general manager of UAP Financial Services Ltd, Uganda.

Uganda’s power distributor Umeme, which listed its shares on the USE in December last year, had been planning a cross border IPO but settled for a primary listing on the USE, in Uganda’s currency and a cross listing on the NSE.

Multi-currency denominated IPOs would also open the way for more investment options for funds that are holding a lot of cash and make trading easier for such securities.

“Large investors with excess shilling funds would invest them in alternative assets in the local market, which in turn would yield more financial depth,” said Kenneth Kitariko, chief executive officer, African Alliance Uganda.

The introduction of multi-currency denominated IPOs is linked to a requirement for each of the EAC countries to domesticate regional rules for issuing fixed income securities as law.

Henry Rotich, Kenya’s Cabinet Secretary for National Treasury, in his budget statement for the 2013/14 financial year, said he will propose amendments to the Capital Markets Act to provide for the issuance of regional debt securities.

Japeth Katto, chief executive officer of Uganda’s Capital Markets Authority told The EastAfrican that the regulations for issuing fixed income securities across EAC member states are awaiting government endorsement.

He said the EAC Secretariat and regulators in the region would issue additional directives to allow for “one way” licensing of market players.

“This means one player can be licensed to operate in the region by seeking a licence from a domestic regulator who in turn will co-ordinate the licensing process on behalf of its peers,” said Mr Katto.